This week's move saw the November contract break below both the 61.8% and the 67% retracement of the move from the June 26 low of $472.10/mt to the July 11 high of $532.50/mt, calculated at $495.20 at $492/mt respectively. The next level of potential support lies at $486/mt, the July 26 low as marked by the dotted red line. This move is consistent with the seasonal trend, which typically results in prices trending lower through harvest.
Another bearish signal is the breach of the upward-sloping blue line. This could be viewed as a trendline drawn from the July 26 low, but could perhaps be viewed as a neckline for a head-and-shoulders pattern. This is seen by the move to the left shoulder of $513.50/mt on July 28, the higher move to $518.80/mt or the head, along with the right shoulder of $516.20/mt on Aug. 23. Chart theory would point to the measuring ability of this pattern to point to an expected target of $466/mt, which represents the distance from the neckline to the top of the head, which is deducted from the point at which price breaches the neckline which took place in Thursday's trade.
Should the $486/mt level be taken out, solid support lies near the $472 level. A double-bottom was formed in two consecutive weeks in July/August 2016 at $472.20/mt and $472.10/mt, another double-bottom was formed in two consecutive weeks in March/April at $473/mt and $471.80/mt while a third double-bottom was seen in June at $472.40/mt and $472.10/mt. This line will be a difficult one to cross.
The lower study shows the November/January spread ending at minus $6.60/mt, $.10/mt stronger this session, while $.10/mt weaker over the course of the week. Despite uncertainty surrounding 2017 production and this week's July 31 stocks reported in the lower-end of the range of pre-report estimates, commercial traders continue to hold this spread at 67% of full carry as reported by the ICE Canada Exchange, which is on the line that separates a neutral view of market fundamentals and a bearish view of fundamentals. Recent cash basis weakness is yet another signal supporting this view.
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